Starbucks China sees rise in sales despite challenges

Starbucks China posted a 10 percent increase in comparable store sales and a 20 percent growth in revenue in its fiscal first quarter, despite a 9 percent decline in average spending amid a price war within the chain coffee market in the country, according to its financial results for its 13-week fiscal first quarter which ended Dec 31, 2023. Comparable store sales in China, the company's second-largest market worldwide, increased 10 percent, driven by a 21 percent increase in comparable transactions.

Revenue has reached $735 million, up 20 percent year-on-year.

The company has added 169 new stores, penetrating 28 county-level markets, with a grand total of 6,975 stores.

However, it has faced a 9 percent decline in average ticket price as a result of promotional efforts and coupons, amid increased discounting by rivals in China.

CEO Laxman Narasimhan said on a post-earnings call on Tuesday that Chinese consumers are "more cautious".

To get ahead of the fierce competition in the on-premise coffee sector, Starbucks China has quickened its pace in innovations and new product development. In its first three fiscal months, 12 new coffee drinks were rolled out.

A total of 52 percent of its total sales executed through digital tools, a record 4 percent increase from previous fiscal quarter.

China CEO Belinda Wong outlined strategic initiatives for company growth and ticket growth.

These efforts include amplifying beverage and food innovation; accelerating digitalization for innovations, sales and productivity; and pursuing new store expansion in existing cities and into new county cities.

"As of the first quarter, we are only in 857 cities out of the nearly 3,000 in China. The opportunities are abundant and new stores continue to deliver best in class store profitability and returns," she said.

Meanwhile, consolidating its leading position in the high-end coffee sector, the company aims to excel in the premium market. According to its latest brand tracker, Starbucks remains the top choice for away-from-home coffee, especially among Gen-Z consumers.